Overview

In no other country has health care served as such a volatile flashpoint of ideological conflict. America has endured a century of rancorous debate on health insurance, and despite the passage of legislation in 2010, the battle is not yet over. This book is a history of how and why the United States became so stubbornly different in health care, presented by an expert with unsurpassed knowledge of the issues.

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Overview

In no other country has health care served as such a volatile flashpoint of ideological conflict. America has endured a century of rancorous debate on health insurance, and despite the passage of legislation in 2010, the battle is not yet over. This book is a history of how and why the United States became so stubbornly different in health care, presented by an expert with unsurpassed knowledge of the issues.

Tracing health-care reform from its beginnings to its current uncertain prospects, Paul Starr argues that the United States ensnared itself in a trap through policies that satisfied enough of the public and so enriched the health-care industry as to make the system difficult to change.

He reveals the inside story of the rise and fall of the Clinton health plan in the early 1990s—and of the Gingrich counterrevolution that followed. And he explains the curious tale of how Mitt Romney’s reforms in Massachusetts became a model for Democrats and then follows both the passage of those reforms under Obama and the explosive reaction they elicited from conservatives. Writing concisely and with an even hand, the author offers exactly what is needed as the debate continues—a penetrating account of how health care became such treacherous terrain in American politics.

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Remedy and Reaction

THE PECULIAR AMERICAN STRUGGLE OVER HEALTH CARE REFORM

Yale UNIVERSITY PRESS

CHAPTER 1

Evolution through Defeat

FOR AMERICAN LIBERALS IN THE TWENTIETH CENTURY, health insurance for all was a per sis tent dream and a perennial disappointment, often on the horizon but always seemingly just beyond reach. After the death of one veteran advocate, Congressman Claude Pepper, in 1989, Democrats ruefully told one another that when Pepper arrived in heaven, he asked, "Will America ever have national health insurance?" and the Lord said, "Yes, but not in my lifetime." Before World War I, the reformers of the Progressive era had won the enactment of food and drug regulation, antitrust law, labor legislation, national parks, the Federal Reserve, and workers' compensation—but met defeat on health insurance. During the 1930s and '40s, the New Deal and its successor, the Fair Deal, definitively established federal responsibility for the overall stability and growth of the economy and led to the passage of Social Security, collective bargaining laws, financial regulation, a minimum wage, and the GI Bill—but not health insurance. The era of liberal reform in the 1960s and '70s added civil rights legislation, antipoverty programs, regulation of occupational safety and consumer products, environmental protection, Medicare for the elderly, and Medicaid for some of the poor—but not universal health insurance.

If Americans came to know one thing about the history of battles over health insurance, it was that a government program to make health care a right of citizenship had always been defeated. The specter of failure loomed so heavily over the national memory in health policy that public figures and the news media even attributed defeats to presidents who had never attempted to pass universal health care.

Yet this is not the story of an unchanging movement with an unchanging result. Health-care reform in the United States has been an evolving political project. While there have been historical continuities from one era to another, the objectives of reform have shifted as American politics and the economics of health care have changed. As a result, the enterprise of reform has undergone a complete transformation.

Health insurance first emerged as a public issue during the Progressive era, particularly during the years between 1915 and 1919, when reformers proposed health insurance as a program at the state level, primarily intending to provide income support for industrial workers during spells of illness. During a second period, beginning in 1935, reformers sought an expansionary health insurance program with national scope to finance medical care for the entire population. The pursuit of national health insurance continued until 1950, when liberal policy experts decided to downsize their aims to a hospital insurance program for the elderly, later to be known as Medicare. Along with favored tax status for employment-based insurance (definitively established in 1954), the enactment of an expanded version of Medicare in 1965 provided significant protection against the financial risks of illness to a majority of the public and channeled an increasing flow of the nation's income into health care. As a result, when efforts to pass national health insurance resumed in the late 1960s, the political environment of the movement had changed. Proposals for universal coverage had to deal with the skyrocketing costs of both public and private insurance. Instead of proposing an explicitly expansionary program, reformers increasingly sought changes in both the organization and the finance of health care to contain costs as well as to extend coverage and improve ser vices. Gradually, the definition of the aim changed from "national health insurance" to "comprehensive health-care reform."

The substance and context of reform have changed so drastically over the past century that no single cause can possibly account for the outcome. From one phase to the next, the dominant paradigms for policy have changed. So have the political alliances in favor of and against reform. Neither political parties nor key interest groups have held to the same positions. Early defeats and limited successes have complicated the fulfillment of the aim of universal coverage, as large parts of the public secured protection. Vast financial interests have developed that would not exist if earlier struggles had turned out differently. In short, the fate of health-care reform cannot be explained without examining the critical decision points along the distinctive historical path that policy and institutions have followed in the United States.

Progressive Health Insurance, 1915–1919

The earliest proposals for government-sponsored health insurance in the United States took their cue from programs enacted earlier in Europe. Before their governments intervened, many Europe an workers were insured through sickness funds established by mutual societies, unions, and employers, which provided cash benefits to make up for lost wages as well as payment of doctors' ser vices. When governments first began subsidizing voluntary funds or made participation in sickness insurance compulsory, they did so as part of a series of measures to limit the threat of impoverishment from four major types of risks: workplace accidents, sickness and disability, old age, and unemployment. Germany led the way, enacting sickness insurance in 1883, and Britain adopted national insurance in 1911. The early focus of social insurance on workers—the programs typically applied first to industrial workers and only later to their dependents and others—reflected a mixture of economic and political objectives. By relieving economic insecurity among wage earners, political leaders such as Germany's Iron Chancellor, Otto von Bismarck, and Britain's Liberal leader, David Lloyd George, were trying to deny socialist parties their appeal and to integrate the working class into the existing political order. Sickness insurance was also expected to increase the wealth and power of a nation through the improved health and efficiency of its labor force and army.

As government health insurance programs continued to spread in Europe, the idea at first drew little interest in the United States, though many states did adopt workers' compensation programs (industrial accident insurance). The Socialist Party in the United States, far weaker than its Eu rope an counterparts, endorsed compulsory health insurance in 1904, but it had little impact. Although economic regulation was gaining ground by then, laissez-faire ideas still permeated public policy, especially judicial thought. In that era's classic test of economic regulation, Lochner v. New York (1905), the Supreme Court struck down a statutory limit on the working day on the grounds that the law interfered with freedom of contract. The federal government still had only a peripheral role in public health and no role in financing medical ser vices, except for merchant seamen. State and local governments were increasingly involved in public health measures but generally kept out of the provision and financing of medical ser vices, except through public hospitals and clinics for the poor. Even in the private sector, protection against the costs of illness was limited. Commercial health insurance had hardly developed, and although many fraternal lodges, some unions, and a few employers provided sick pay and medical benefits, these ways of spreading the costs of illness were less common in the United States than they had been in Britain and Germany prior to government intervention.

The first significant reference to health insurance in American politics came in 1912—the year after Britain passed its National Insurance Act—when Progressive Republicans bolted from the GOP to form the Progressive Party, nominated Theodore Roosevelt for president, and had a line in their platform supporting social insurance, including protection against the costs of sickness. After succeeding William McKinley, Roosevelt had served as president from 1901 to 1909. The notion that health insurance is "something that Washington has been talking about since Teddy Roosevelt was president" (as President Obama put it in 2010 in one of many references) is a misunderstanding. During his years in the White House, Roosevelt had never addressed health insurance, and his speeches during the 1912 campaign did not discuss it. This silence is understandable because at that time no one had yet formulated any specific proposals for health insurance, and the general understanding was that all such issues were properly the responsibilities of the states, not the federal government, if for no other reason than the certainty that the Supreme Court would have overturned any federal legislation of that kind. The real significance of Roosevelt's presence on the ticket of a party that endorsed compulsory health insurance is that he was representative of a faction of Republicans favorably disposed toward the idea, and if that faction had been stronger, it might have been able, together with Democrats, to enact health insurance at the state level. Such an alliance did come very close to success in one state.

It was just after the 1912 election that a small, primarily academic group of reformers, the American Association for Labor Legislation, convened a meeting to discuss social insurance and decided to focus on developing a health insurance program. The group's proposal, published in 1915, called for sick pay at two-thirds of wages for up to 26 weeks, payment of medical bills, a maternity benefit for both insured women and the wives of insured men, and a small benefit at death to cover burial costs. On the premise that middle-and upper-income people could take care of their own expenses, the program applied only to workers (and their dependents) making less than $1,200 a year, except for domestic and casual employees. The group estimated that the benefits would cost 4 percent of wages and proposed that those costs be divided among workers and employers, each to pay two-fifths, and the government, to pay the remaining fifth. In the advocates' view, health insurance had to be compulsory because low-income workers could not afford it unless contributions from employers and government were required along with their own.

The reformers of the Progressive era presented compulsory health insurance not as a special interest of labor or the poor, but as a general interest of an enlightened society. Citing data from charities and other sources indicating that illness was a primary cause of poverty, they argued that spreading the costs of sickness would reduce the prevalence of destitution and de pen den cy. By paying for effective medical care and giving employers and government incentives for preventive and public health measures, compulsory health insurance would also reduce the social burden of disease. The labor-law reformers had made similar arguments in promoting workers' compensation (also a form of compulsory insurance), and their success in gaining the adoption of that program gave them confidence about the prospects for passing health insurance. The campaign for workers' compensation had enjoyed the support of many employers, such as those represented in another moderate reform group, the National Civic Federation, which brought together corporate and labor union leaders. But employers had a clearer interest in workers' compensation than in health insurance. Jury verdicts against companies in workplace accident cases were rising, and many employers preferred the predictability of a compulsory insurance program to the uncertain costs of litigation. Regarding health insurance, business representatives came to a different conclusion. They objected to the provision for sick pay because it might increase malingering, and although they had been forced to accept some liability for workplace injuries, they refused to accept responsibility for the costs of all illnesses of their employees, much less for the medical costs of their employees' dependents.

While employers were hostile, labor leaders had a mixed response to the reformers' health insurance proposal. At that time the American Federation of Labor generally opposed public social programs, including a minimum wage, on the grounds that workers should look to unions for protection, not to the government. Based on his own experience as a leader of the cigar workers, the president of the AFL, Samuel Gompers, saw health benefits as a way for unions to build their membership. But some of the state labor federations and individual unions did support compulsory health insurance, and the AFL would eventually reverse its opposition in the 1930s.

Another potential source of support, women's groups, also faced divisions in their ranks in response to the AALL's insurance proposal. The leader of the National Consumers League, Florence Kelley, opposed the maternity benefit because, in her view, single, working women would be taxed for a benefit that was of no use to them. But other women leaders in both the labor and suffrage movement vigorously supported the AALL's proposal for health insurance, including the maternity benefit.

Though unable to secure unified labor and women's support, the labor-law reformers at first enjoyed the cooperation of the American Medical Association in the drive for government-sponsored health insurance. The AMA had been the ally of social reformers in passing other public health and regulatory legislation and attacking medical quackery. In the view of many doctors, including prominent leaders of the profession, compulsory health insurance would benefit physicians as well as their patients by financing medical care for many people who otherwise could not afford it. But discontent percolated up from the county medical societies, typically dominated by an inner fraternity of successful specialists. These physicians worried that government would follow the pattern of fraternal lodges, unions, and employers in driving down physicians' incomes by forcing them to compete for contracts to care for groups on a per capita (or "capitation") basis. The doctors' concerns were not fanciful. Some of the reformers, having learned from Europe an experience that paying physicians by fee for ser vice could create budgetary problems, hoped to use capitation payment. An AMA leader, Alexander Lambert, Theodore Roosevelt's personal physician, proposed as a compromise that doctors be paid fee-for-service but out of local funds with a fixed bud get. Another reformer of the time, Michael M. Davis, after visiting the Mayo Clinic, suggested that health insurance could help promote group practice. Because physicians objected to all such ideas, reformers quickly abandoned them, but the concessions were futile. Physicians' groups—at the county, the state, and eventually the national level—turned against compulsory health insurance and played a central role in its defeat.

From the beginning of the Progressive campaign, the most implacable opponent of a government program was the insurance industry, even though it had no stake at that point in health insurance. By offering a funeral benefit, however, the AALL's model bill struck at one of the most profitable lines of business for companies such as Prudential and Metropolitan Life—the door-to-door sale of "industrial insurance" by an army of insurance agents, who collected 25 cents or so a week from working-class families for policies that provided a death benefit to cover the costs of a final illness and burial. Reformers argued that because the insurers' high marketing costs absorbed a large share of the money spent on the burial policies, a government program would better serve workers. But by threatening insurers through the inclusion of a funeral benefit, reformers stirred them to oppose the health insurance program in its entirety, which the companies saw as a dangerous precedent for a wider government assault on the whole enterprise of private insurance.

At first, from 1915 to 1917, momentum seemed to be gathering in favor of a government insurance program. A half-dozen states established commissions to study the issue and make recommendations, but the Progressive movement had already peaked and was beginning to falter. In the 1916 election, the Progressive Party broke up, and after the United States entered World War I in April 1917, the war effort absorbed much of the energy that had previously gone into domestic reform. Amid intense anti-German war propaganda, moreover, the opponents of compulsory health insurance emphasized that the idea had originated in Germany and attacked it as un-American. It was in this atmosphere that health insurance went down to defeat in a state referendum in California.(Continues...)

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